Weak Euro economies dampen Diageo results

By Guy Montague-Jones

- Last updated on GMT

Diageo CEO Paul Walsh is banking on a 10 per cent hike in marketing spend translating into better top-line results
Diageo CEO Paul Walsh is banking on a 10 per cent hike in marketing spend translating into better top-line results

Related tags: Investment, Diageo

Diageo has taken a hit in the last 6 months of 2010 from weak performance in the struggling economies of Iberia, Greece and Ireland.

Publishing its results for the first half of financial year 2011, the UK-based spirits maker said overall reported sales rose 2 per cent to £5,320m. But growth was dampened by a 13 per cent drop in sales from Greece, the Iberian countries and Ireland.

Missed expectations

The weakness in Europe meant that Diageo missed market expectations. On the back of the news, shares in the company dropped almost 5 per cent in trading this morning.

Giving his reaction to the H1 results, James Edwardes-Jones, an analyst at Espirito Santo said: “A small miss; no substantive mention of cost saving or restructuring, unchanged and uninspiring guidance ... we regard this as a missed opportunity by Diageo.”

However, Paul Walsh, Diageo CEO, is confident that with the help of targeted increases in marketing spending the company can improve full year organic operating result.

“Despite the economic weakness in much of Europe, our first half performance gives me increased confidence that we will improve on the organic operating profit growth we delivered in fiscal 2010.”

Marketing focus

Walsh said that Diageo has increased marketing spend 10 per cent to drive future growth. Explaining how the money is being spent, he said: “35 per cent of the increase was behind strategic brands in US spirits to build the brand equity as we move away from promotional support and 60 per cent of the increase was on our brands in the faster growing emerging markets.”

Emerging markets in Asia Pacific and Latin America continue to be important sources for growth for Diageo. Whisky sales in particular were strong in H1 growing by double-digit margins in both regions.

Related topics: Manufacturers, Diageo

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